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6 Mistakes to Avoid When Trading Online

Many emerging stock traders enter into the market with high market expectations. However, the sad truth is that making quick profits isn’t as easy as they expect. Most traders are discouraged to continue with the business the moment this fact strikes them. The prospect of making money often attracts people into the online trading arena.

Online Trading Mistakes

Most online trading professionals have had many mistakes. However, these professionals study their mistakes and learn how to minimize them. This introduces us to common silly mistakes in online trading. These are certain practices that if regularly used, are likely to cost a trader his/her precious investments. These mistakes can be easily avoided through discipline, knowledge and alternative approach. Let’s look at some of the common mistakes made by active online traders.

A good example of a professional online trader is CMC markets. This is a UK-based online financial dealer that offers online trading spread betting and foreign exchange. Its headquarters are based in London with hubs in Singapore and Sydney.

Little Preparation

Preparation is a key issue when venturing in any online trading. However, very few traders put this into consideration before heading into the market. A good way to prepare for a forex trading is reading as many relevant books as you can. Very few books teaches everything you need to know regarding online trading, it’s thus important to go through various books. Even if you have a strong financial prowess, it is difficult to make profits without preparation. Go through some business-related training, either enrolling in a business school or on-the-job training with a financial company.

Lack of Record Keeping

When trading online, everything seems to be going up and down. Total strangers are either giving you money or taking money away from you. At some point you may feel you have no control over what’s happening. To help monitor what’s really taking place, it is recommended to keep a trading diary. A detailed record keeping has many benefits. It helps in showing you where you went right as well as where you went wrong in the past. It is good to look back at previous experiences, having noted down what happened in the market such as what were your profits/loss. A trading diary is an immensely powerful tool which is often neglected by traders.

Not Cutting Your Losses

One of the dangerous trading misconceptions is that you can beat all odds and turn running losses into profits. Learning how to stop is an important skill that is mostly developed through experience. However, there are techniques that can guide you through monitoring losing positions. One of the techniques involves placing stop orders before opening the position. This is to guide you when to come out of a losing trade.

Create and adhere to a trading plan, where you should outline your trading strategy beforehand. Naturally in any online trading, there may be situations where you don’t have any other option than to endure running losses to emerge profits in the long-term.

Unrealistic Expectations

Having unrealistic expectations is one of the common mistakes traders do, expecting the market to act according to their desires and trade direction. Accepting that the market can be quite illogical is the first step you need to accept. It is almost impossible to make profit from each move you make. The perfect way of avoiding unrealistic expectations is through formulation of a trading plan. If the plan yields steady results, stick to it.

With forex trading, even a small gain can become large. As capital increases over time, you can implement new strategies, testing with minimal capital at first. If the results are positive, more capital can be channeled into the strategy. A trader must also accept what the market offers at different parts of the day. Near the open, the markets can be quite volatile. Specific strategies can be adopted during this time. As time progresses, the market may become quieter and a different strategy can be implemented. Accept what’s offered at different points in the day.

Not Calculating Risk V Reward Ratio

Risk V reward ratio is the relationship between what you stand to gain and what you stand to lose. When calculating this, you need to know your profit objective, current instrument price and stop exit price. You can thus establish whether your trading ratio falls within your trading strategy. New traders should stick to ratios with high rewards and low risks. This is to minimize the potential of incurring large losses. More experienced traders should venture into high-risk investments for greater profits.

Bad Timing

This mistake is common to new traders. Such traders are likely to lose out on lucrative investments due to bad timing.

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